The UK government has introduced a new floor price for the extraordinary tax on oil and gas producers. This is necessary to increase the country’s energy security and support investment. The tax rate will return to its pre-crisis level of 40% if oil and gas prices fall below their long-term average in scope of the Energy Security Investment Facility. The minimum price was set at $71.40 for crude oil and £0.54 per therm for gas. Both would have to maintain an average below that level for two consecutive quarters to trigger the tax rate reduction.
This move comes after pressure from the UK oil and gas industry, which claimed the levy was a deterrent to investment. Windfall tax softening might be controversial among cost-of-living activists as consumers continue to face high energy bills. Wholesale oil and gas prices have fallen sharply in recent months, but government support for households and businesses has also been reduced.
Treasury officials are meeting with oil and gas industry executives to discuss the new measures. It is more than irresponsible to turn off the North Sea taps overnight, says Treasury secretary Gareth Davies. The tax rate had risen from 40% to 65% in May and then to 75% from January 1 this year, expected to be in effect until 2028. It will now fall before then if prices they will descend below the new floor.
Oil and gas companies argued that the measure discouraged investment by taxing projects heavily as prices returned to more normal levels and banks withdrew funding from the sector. After reaching a peak of over £6 a temp last summer, UK wholesale gas prices are back to just over 60 pence a temp, only slightly above the long-term average over the last decade.
The windfall tax easing comes as the Labor Party said it would end new licenses for gas and drilling in the North Sea if it wins a general election scheduled for next year. Gary Smith, general secretary of the GMB union, last month urged Starmer to scrap the plan, warning him “strangulation” the North Sea oil industry would be ‘bad for jobs’ and it would be ‘bad for the environment’ because the UK would still have to import gas and oil from overseas with a higher carbon footprint.
Industry experts predict that the Conservative Party will use the backlash against Labor’s plans to review the income tax, thereby positioning themselves as strong supporters of the industry. The move boosted stock prices of oil producers on Friday morning. Harbor Energy, which has warned it will shift investment to the US because of the tax, rose 3.45% to £2.55. Serica Energy climbed 3.10% to £2.49.
Additional Piece:
While the government’s step towards decreasing the tax on oil and gas producers to a floor price has been imperative to support investment, there are concerns about the long-term impact of the move. Some experts argue that reducing the tax only benefits the companies producing oil and not the environment. Companies’ efforts to transition to sustainable energy are hindered as they continue to benefit from the consumption of fossil fuels.
The UK government must encourage investments in sustainable energy and renewable sources, ensuring that oil and gas are only used as a backup. The government’s priority should be to support the development of innovative solutions for environmentally sustainable energy sources, which can also create new employment opportunities.
The oil and gas industry is a significant contributor to climate change. Thus, to reduce carbon emissions and ensure that the UK meets its climate targets, the government must provide incentives for renewable energy investment. It should also encourage the industry to shift towards sustainable practices, reducing the negative impact of its activities on the environment.
Another concern is that the shift towards sustainable energy sources could lead to a loss of jobs in the oil and gas industry. Therefore, it is crucial to provide training and re-skilling opportunities for workers to transition from fossil fuel to renewable sources. By enabling a transition to sustainable energy, the government can ensure that the UK’s energy sector remains efficient, resilient, and competitive in the long term.
In conclusion, reducing oil and gas taxes to support investment in the energy industry is a step forward for the UK. However, the government must ensure that companies invest in sustainable energy solutions to reduce the negative impact of the industry on the environment. The government should also provide re-skilling opportunities to ensure that workers in the oil and gas sector can transition to sustainable sources of energy. By doing so, the UK can ensure a sustainable, secure, and efficient energy future.
Summary:
The UK government has introduced a floor price for the tax on oil and gas producers to increase the country’s energy security and support investment. This measure has come after industry pressure and will return tax rates to their pre-crisis level if oil and gas prices fall below their long-term average. The windfall tax softening eases relief for companies but raises concerns for environmentalists. The Conservative Party may also use the move to review the income tax and cement their position as strong supporters of the industry.
The UK government must encourage investments in sustainable energy and renewable sources, ensuring the development of innovative solutions for sustainable energy sources to reduce carbon emissions and meet climate targets. Reskilling and upskilling opportunities must be available for workers in the oil and gas industry to transition to sustainable sources of energy. The government must ensure that the UK’s energy sector remains efficient, resilient, and competitive in the long term.
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The UK government has introduced a floor price for the extraordinary tax on oil and gas producers, arguing that it is necessary to support investment and increase the country’s energy security.
The tax rate, which was raised to 75% last year at the height of the energy crisis, will return to its pre-crisis level of 40% if oil and gas prices fall below their long-term average in scope of the so-called Energy Security Investment Facility.
The minimum price was set at 71.40 dollars for crude oil and 0.54 pounds per therm for gas. Both would have to maintain an average below that level for two consecutive quarters to trigger the tax rate reduction.
Treasury officials are meeting with oil and gas industry executives on Friday at a forum in Aberdeen.
The move comes after months of pressure from industry, which claimed the levy was a deterrent to investment, and as Norway’s state-owned oil company, Equinor, weighs whether to go ahead with its major new North Sea Project, Rosebank.
Windfall tax softening likely to be controversial among cost-of-living activists as consumers continue to face high energy bills. Wholesale oil and gas prices have fallen sharply in recent months, but government support for households and businesses has also been reduced.
Treasury secretary Gareth Davies said it was “important to secure investment in our domestic supply, while protecting the tens of thousands of British jobs that go with it”.
It would be “more than irresponsible to turn off the North Sea taps overnight,” he added.
Plans to introduce a plan were previously reported in March in view of the Budget, but subsequently shelved by the government.
Ministers introduced the income tax on North Sea oil and gas producers last year to offset an estimated £29.4bn bill to subsidize household energy bills as wholesale prices soared in the wake of Russia’s invasion of Ukraine .
Under the measures, the tax rate fell from 40% to 65% in May and then to 75% from January 1 this year, expected to be in effect until 2028. It will now fall before then if prices they will descend below the new floor.
Oil and gas companies argued the measure discouraged investment by taxing projects heavily as prices returned to more normal levels and banks withdrew funding from the sector.
After reaching a peak of over £6 a temp last summer, UK wholesale gas prices are back to just over 60 pence a temp, only slightly above the long-term average over the last decade . Oil prices are back to approx $75 a barrel – roughly the level they were at before the Russian invasion of Ukraine – having reached $130 a barrel last year.
The Treasury said on Friday it does not expect the price floor to be triggered before the tax’s expected end date in 2028, based on forecasts from the Office of Budgetary Accountability. Prices were last at or below their trough in 2021.
He said the tax had risen by around £2.8 billion so far and was expected to rise by nearly £26 billion by March 2028.
The move boosted stock prices of oil producers on Friday morning. Harbor Energy, which has warned it will shift investment to the US because of the tax, rose 3.45% to £2.55. Serica Energy climbed 3.10% to £2.49.
The windfall tax easing comes as the Labor Party said it would end new licenses for gas and drilling in the North Sea if it wins a general election scheduled for next year.
Gary Smith, general secretary of the GMB union, last month urged Starmer to scrap the plan, warning him “strangulation” the North Sea oil industry would be ‘bad for jobs’ and it would be ‘bad for the environment’ because the UK would still have to import gas and oil from overseas with a higher carbon footprint.
An industry figure said he expected the Conservative Party to feel the backlash against Labor’s plans had “opened up the policy space” to review the income tax, allowing the Conservatives to position themselves as strong supporters of the industry.
https://www.ft.com/content/7a8e73e2-de4c-4f11-985b-80a6c56d8ee5
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